Apple 2007 Annual Report Download - page 108

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•
The officer's experience and performance
•
The scope, responsibility and business impact of the officer's position
• The perceived retention value of the total compensation package in light of the competitive environment
Once the target value has been established, the Committee determines the number of shares by reference to the current value of
Apple's common stock.
4.
The Minor Role of Cash Compensation
Base Salaries. The Committee believes that base salaries are significantly less important than performance-based bonuses and
long-term equity awards in meeting Apple's compensation objectives. The minor role of salaries as part of total compensation is
reflected in the following:
• The CEO has received an annual base salary of $1 since rejoining Apple in 1997.
• The fiscal 2007 average base salary for the other named executive officers was below median among the peer
companies shown in Section D6, despite Apple's significantly greater financial and business success.
•
Base salaries for the named executive officers have not increased since October 2005, except for a promotion
-
related increase for one officer.
Performance-Based Cash Incentives. The Performance Bonus Plan, which has been approved by Apple's shareholders,
authorizes the Committee to issue plan-based cash incentive awards to compensate officers for achieving specific financial
objectives that are established annually. The Committee believes that performance-based cash compensation is an important
component of executive compensation; however, it represents a small percentage of total compensation because its effectiveness
in meeting Apple's compensation objectives is limited. It is a less significant factor in attracting new executive talent than equity
compensation, and it promotes retention only in the short-term—over the performance period. Accordingly, the plan is modestly
funded, as reflected by the following:
•
The CEO does not participate in the Performance Bonus Plan.
• Apple's target payout of 50% of base salary is significantly lower than peer companies as a group, where median
target bonus payouts range from 100% to 160% of base salary.
•
The maximum payout of 100% for exceptional performance is also lower than peer companies, where 3 times the
target range (i.e., 300% to 480% of base salary) is becoming increasingly common.
The Compensation Committee establishes performance goals each year based on revenue and operating income objectives in
Apple's internal business plan. The Committee has selected these performance goals because they are important indicators of
increased shareholder value. These performance goals generally exclude the effects of extraordinary, unusual or infrequently
occurring events or changes in accounting principles. Apple does not publicly disclose specific annual internal revenue or
operating income objectives, as its business plan is highly confidential. Disclosing specific objectives would provide competitors
and other third parties with insights into the planning process and would therefore cause competitive harm.
The Committee next determines the maximum amount of any cash incentive payment denominated as a percentage of base salary.
The current payment structure is shown in the payout matrix below. Once the performance goals and payment structure are
established, no one has the authority to modify or waive them.
104